What Happens to My Retirement in a NY Bankruptcy?
An exemption is something you are allowed to keep even though you file for bankruptcy. The theory behind bankruptcy is that you can get debt relief without losing everything you own. In New York, in almost all cases, the debtor is able to retain everything he or she owns for two reasons: first, someone filing bankruptcy seldom has much property left, and second, the exemptions granted to New York filers are quite extensive. Retirement accounts and 401(k)s are generally safe.
New Yorkers Can Choose Between State and Federal Exemptions
Each state decides what exemptions a debtor may use. A state may provide its own list of exemptions and require that a debtor use only those exemptions. Or, a state may allow a debtor to use what are called “federal exemptions,” which is the list of exemptions provide in the U.S. Bankruptcy Code. While New York has its own list of exemptions, it also allows a debtor to choose the federal exemptions with this restriction: a debtor has to choose which list to use and must use it exclusively – the debtor cannot choose some from one list and some from another.
Clients Who Use Their Retirement to Pay Debt Often Wish They Hadn’t Once They Find Out It Would Have Been Protected in a Bankruptcy
In New York, under New York’s list of exemptions, virtually any tax-deferred retirement plan is exempt. This means that regular pension plans, 401(k) plans, 453 plans, 401(b) plans, tax deferred annuities, IRA’s, Keogh Plans and virtually any tax-deferred plan is safe in a bankruptcy. The only minor exception would be where a debtor created an annuity shortly before the filing.
The same is true if a New York debtor utilizes the federal exemptions. All of the same types of retirement accounts and benefits are exempt under the federal scheme as well.
One of the unfortunate things I see in my practice is when clients who have to file bankruptcy have used pension loans or pension withdrawals to pay their debts. Had they come in sooner, they would have been able to keep all of their retirement benefits through the bankruptcy.
Allan Bloomfield practices bankruptcy law in Forest Hills, Queens. Contact Allan today for a free consultation.